Kenya, one of several sub-Saharan African countries to have seen increased risk since January, has fallen into the fifth of ECRs five-tiered categories since Q1 2012, plunging 10 places in the global rankings to 104, below Gabon.
Its score has fallen by 3.4 points to 36.1, reversing a 1.4 point improvement witnessed in the second half of last year.
Although Kenyas score is above the Africa average of 29.0, the sovereign has failed to improve on its initial score of 37.3 when Euromoney began its country risk survey 20 years ago.
Scores for two of Kenyas three main surveyed risk categories political and institutional have improved since January, although institutional risk has become more of a concern in advance of the presidential and parliamentary elections due in March.
The economic assessment has been affected by a reduced economic-GNP outlook. The African Economic Outlook, a report issued jointly by the African Development Bank and the Organization for Economic Cooperation and Development, predicts 5.2% real GDP growth for Kenya in 2012, rising to 5.5% in 2013, after a slowdown to 4.5% in 2011.
However, real GDP growth slowed to 3.5% year-on-year in Q1 2012 from 5.1% in Q1 2011 and was flat on a quarter-on-quarter, seasonally adjusted basis according to Kenyas National Bureau of Statistics, dampened by oil-induced high inflation, elevated interest rates due to tighter monetary policy, and delayed rainfall.
According to Peter Kiio, research economist at Kenya Commercial Bank, and one of ECR's contributors:
[The] drop in economic growth for the first quarter led to readjustments in the forecast for end-year. This [is] due to the eurozone crisis that has affected our exports, the tight monetary policy that has affected credit to the private sector, inflationary pressure from world oil prices, high lending rates and political risks ahead of the general election.
However, Kenya's score has recovered slightly since June, and as Peter Kiio explains,
The central bank has started easing monetary policy and we expect this will drive back the economy to higher growth levels as inflation hits the single-digit target. The east Africa regional integration is also expected to increase intra-trade, whose benefits will spill over to 2013.
Similarly, Samir Gadio, emerging markets strategist (Africa) at Standard Bank, and one of ECRs Kenya contributors, is not particularly concerned by the countrys risk decline, which he attributes in part to increased global-risk perceptions:
The current account is large, but that is nothing new. Money market yields are correcting, the tight monetary stance is easing demand a bit and it could be a reaction to the currency, but I am not particularly worried.
He does, however, indicate that with elections due next year, naturally there is some uncertainty ahead.